This Company Is Ready to Take-Off
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It was recently announced that Bank of Japan’s bond purchases hit $1 trillion, a figure nearly equivalent to the country’s annual spending. On top of that, Japan’s probable next PM, Shinzo Abe, believes in printing unlimited yen in order to reach the inflation target of 3%. World over, countries are pumping liquidity into the financial system, and when this trickles down, spending will increase. With increased consumer spending, tourism flourishes, which brings businesses like OTA companies into play.
Maybe it is due to this optimism that Priceline (NASDAQ: PCLN) acquired Kayak for $1.8 billion. Kayak, which is a travel meta-search-engine, was originally founded by Expedia (NASDAQ: EXPE), Travelocity, and Orbitz in 2004. The acquisition would certainly boost Priceline’s overall top line, but analysts believe that the purchase was at a premium. Also Kayak is in direct completion with Google Flights (NASDAQ: GOOG). As of now Kayak beats Google Flights in terms of accuracy, response times, and value for money, but I doubt if Google would remain overshadowed by its peer for long. Also one should know that Kayak’s business model depends on Google’s ITA software, as it is responsible for the pricing of airline tickets.
Priceline reported a 17.4% spike in revenues along with a 41% surge in gross bookings. Earnings came in 25% higher at $12.40 against the estimated $11.81. The Street was impressed by earnings and the company rose by 10%+ on the same day.
In this Google-Kayak tussle, if Kayak wins Priceline stands to gain massively, and if it loses, Priceline would have a redundant website. Risk taking investors could buy Priceline, looking to lock in massive returns over the shorter term. But conservative investors willing to capitalize in the growth prospects of the OTA industry should be looking at Expedia.
The company reported a 17% jump in revenues, with a 19% spike in gross bookings. Air ticket sales rose by 11% accompanied by a 27% jump in global night room bookings. International revenues rose by 27%, and account for 45% of its total revenues. The company ended the quarter with $2.4 billion in cash and cash equivalents, with $1.2 billion in long term debt.
Understanding the growth prospects presented by smartphone growth, Expedia had launched a mobile ticketing app. By entering into the mobile platform, the company can now be involved in direct marketing and can also provide lucrative deals, without spending much on advertising and marketing. The mobile app covers over 200 airlines and 140,000 hotels, and is the most extensive ticketing mobile app available in the market. The management also announced that the “Hotels.com” app had been downloaded over 10 million times.
The company recently launched its “Find Yours” advertising campaign, and management claims that it was viewed over 2 million times in the first week itself. Also Expedia launched its Expedia Travellers Preference program, in which the consumers can pay upfront or pay after reaching their hotels. This is expected to boost Expedia’s online hotel bookings as this would attract consumers who prefer to pay after reaching their desired hotels.
YTD Expedia has repurchased 10.7 million of its shares, which highlights the confidence of the board in the company’s future. The debt/equity ratio is 0.53x and the price/FCF stands at an impressive 8.47x. Expedia enjoys a gross profit margin of 77.7% and pays out 17.2% of its earnings. In my opinion, Expedia would be a great growth stock to hold, with a number of positive catalysts backing it up.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and Priceline.com. Motley Fool newsletter services recommend Google and Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!